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Kyoto kick-start for carbon trading

Kyoto kick-start for carbon trading

ENVIRONMENTAL PROTECTION is firmly embedded in the public consciousness, and governments are jumping into action to attempt to reduce carbon emissions. Australia has been party to the…

ENVIRONMENTAL PROTECTION is firmly embedded in the public consciousness, and governments are jumping into action to attempt to reduce carbon emissions.

Australia has been party to the international climate change debate, but has faced international criticism for its failure to ratify the Kyoto Protocol.

The newly-elected Labor Government has signalled its intention to step up to the plate on the world stage and commit to the binding emissions targets at the upcoming United Nations Climate Change Conference in Bali.

It is yet to be seen what difference ratification will make to Australian companies, but law firms are already preparing to assist clients with implementation of their regulation and compliance strategies.

“I think the biggest issue is that the new government is committed to ratification of the Kyoto Protocol,” said Tony Hill, a partner in Blake Dawson’s environmental group, when asked about the impact of ratification.

“That’s an important step as part of the Bali negotiations in December, an important step in the negotiations in the post-2012 framework, and the important component of developing the Australian emissions trading scheme.”

According to Hill, an emissions trading scheme, if established, “would encompass constitutional law, administrative law, contract and commercial, financial regulations, taxation and property law”.

The Kyoto Protocol comprises two mechanisms under which projects can receive credits for reducing emissions — the first is the joint implementation (JI) mechanism, the second the clean development mechanism (CDM).

The CDM is likely to be the main source of carbon credits for Australian companies trading in the international marketplace. In addition, Australian companies will be able to invest in offsetting projects in developing countries to generate credit through the JI mechanism.

Three law firms interviewed by Lawyers Weekly agreed that the CDM is likely to generate the largest volume of work for their practices in the short- to mid-term, “I do expect that there will be a certain level of business generated by that,” Freehills partner John Taberner said.

“At present it is unclear quite how big that would be because Australian companies have no experience of it, and they might wait to see how early adopters fare. But I would certainly expect to see some work along those lines happening,” Taberner said.

Hill also reported an increase in business, predicting that leading financial organisations will become heavily involved in the carbon trade. The Blakes partner said law firms would be required to handle an increasing volume of legal work associated with the development and implementation of the emissions trading scheme. “That work has already increased,” he said, “and will further increase over the next couple of years the scheme gets more developed.”

Carbon trading is a rapidly developing area of law, and Baker & McKenzie partner Martijn Wilder was quick to distinguish it from general environmental law practice. “The practice that we do is more commercial M&A transactions in the carbon market, not environmental law. It’s a totally different area of law,” he said. “A lot of our work is setting up funds as well and helping people to trade carbon.”

The interaction between the scheme and other areas of environmental planning legislation could also have a significant impact on property lawyers, according to Hill.

“We’re actually seeing a range of legal challenges to major project approvals based on the extent to which greenhouse emissions are taken into account in decision-making and in developments. In fact there was decision yesterday in relation to a proposed residential development at [Sandon] Point. (See article on page 6 for full details of the decision by the Land Environment Court).

“There will be a link in the future between the decisions-making process under the environmental planning legislation and obligations under a future emissions trading scheme,” Hill said.

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